PRASA Annual Report, deviations, expansions & SIU investigations: hearing with Minister

Meeting report

The Chairperson opened the virtual meeting, welcoming the Members, support staff as well as all the guest delegates. He then began proceedings promptly, as the Committee had a tight programme. There was one housekeeping matter that his office had all received that morning - a letter from the Eskom Chief Procurement Officer, which was dispatched to all Members. The Members needed to have a discussion later in the day as the Committee about how they would approach the particular correspondence since it might have a bearing on the hearing with Eskom that was proceeding. The Chairperson requested that Members took time to look at the correspondence.

The delegation of the Passenger Rail Agency of South Africa (PRASA) was welcomed to the meeting. This was a new board and a new Chief Executive Officer (CEO) so they would not necessarily have been the people present in the year under review, but this did not absolve them from accounting for the set of financials that were included in the annual performance report that was submitted to Parliament.  

Briefing by Passenger Rail Agency South Africa (PRASA)

Deviations

Mr Leonard Ramatlakane, Chairperson of PRASA Board, provided introductory remarks on behalf of his board. Though the board was present there was one absentee apology. The Acting Group CEO had taken ill on the previous day; she was booked off ill until Wednesday the following week with a high fever. The last time the board had met with the Standing Committee on Public Accounts (SCOPA), it was fairly new and requested time to receive reports and briefings, especially from the HAWKS and the Special Investigating Unit (SIU) to ensure they understood the issue that they needed to be accountable for. Both investigating institutions had met with PRASA, giving them an update on the investigation progress. The deadline was the 28 February 2021 but they indicated they needed further time and so the deadline was extended to 15 March 2021.

PRASA committed to recovering R26 million. Cabinet had finalised the appointment of a PRASA CEO, which would happen in the coming weeks. He apologised. There was a document the Members would have received late on the previous night. This was because they realised that the initial report needed further information in a column that indicated consequences or actions that had been taken. This was the only change and the rest of the presentation would be in line with what was submitted on 24 February.

Mr Willie Mathebula, Chief Procurement Officer, PRASA, began the presentation from PRASA. The focus was deviations, variations and expansions of the 2019/2020 and 2020/2021 years. Section 79 empowered National Treasury was to be approached for budget deviations.

The Committee Chairperson requested that Mr Mathebula introduce himself, giving details on his position at PRASA.

Mr Mathebula said that he was a Treasury official, seconded to PRASA as part of the team the previous year, which was supporting the administrator at the time. Currently he was the acting CPO in Treasury, whilst he was still at PRASA. He was also providing support with Supply Chain Management (SCM) technical issues. The issues on deviations were extracted from Treasury regulations. The reports were available on the Treasury website, which they had extracted. There was an application that had been made by PRASA to Treasury to appoint the Development Bank South Africa (DBSA) as an implementing agent for a number of projects including station modernisation and the rail network itself.

The Chairperson asked that PRASA move with speed and deal with the substantive matters, as time was not on their side.

Mr S Somyo (ANC) noted that Mr Mathebula was dealing with deviations and requested he go into instances where Treasury had been approached and the reason for such, especially given that Treasury did not approve such deviations or expansions. He directed their interest to where Treasury had declined actions from PRASA.

The Chairperson agreed and asked PRASA to prioritise substantive points: deviations and expansions.

Mr Mathebula went on and clarified that overall, PRASA did not go ahead where Treasury declined. There was a particular matter (using Transnet). However, where Treasury declined and requested more information, for some reason PRASA went ahead. There was a process of consequence management in this regard.

The Chairperson said that it was not substantive to say: “for some reason, PRASA went ahead”. He prompted that they deal with the salient issues in specific detail.

 

Mr Mathebula continued. He indicated that the following applications declined by Treasury and PRASA did not continue with them. These projects would be issued on a competitive bidding process:

• Appointment of DBSA as an Implementing Agent for capital programme
• Leasing of locomotives for Main Line Passenger Services (MLPS) and for a period of six months (Supplier: Premifield).
• Supply, delivery and installation of Over Head Track Equipment (OHTE) on the up main line between Fountains and Olifantsfontein in the Gauteng Region (Supplier: LKKB Engineering).

With the Station Modernisation Programme (Isipingo) with a contract value of R275 038 880 – PRASA had since suspended officials who were involved in that programme.

Mr Somyo interjected to say that the proceedings could not go on like this. The presentation related to money implications and personal matters. Mr Mathebula needed to indicate how much was involved in a particular contract and after the decline from Treasury, how much money was concerned. What were they doing? They needed to be clear as to why they were applying for a deviation. What was actually happening with the contract?

The Chairperson said that an application not being approved by Treasury, and PRASA not proceeding with it, did not mean that the application was not done. They wanted to know why in the first instance they made an application. If National Treasury gave them the go ahead to put out for contractors (open bidding process), SCOPA needed to understand the nature of intent. This was how corruption breeds itself. The Members needed to understand why PRASA applied and why it was declined, and they needed to hear this from Mr Mathebula on behalf of PRASA –substantively, why was a deviation (a type of exception) being normalised. He requested that the Committee did not take a blanket approach to applications that were not approved.

Appointment of DBSA as an Implementing Agent for capital programme

Mr Mathebula said that there was an application to appoint the Development Bank of South Africa (DBSA) from PRASA, because PRASA felt that it could use DBSA as well as it was used as an implementing agent for other processes involving infrastructure. They felt they could use DBSA to deviate from the procurement processes. They had meetings to find out exactly the reason for taking R5.4 billion from National Treasury and giving it to PRASA. If the DBSA was going to go out on behalf of PRASA and procure these goods, what obstructs their process from doing the exactly the same and going out on a competitive bidding process? The aforementioned requested funds were for the rail network rehabilitation and station modernisation programmes.

An instruction was given to PRASA in 2019 to go out on an open, competitive bidding process. In 2020, however, due to lockdown, some of the projects had not yet gone out on tender because PRASA could not issue this because nobody would have responded to some of these. At the time of the meeting, they were preparing tenders to go out into the market and to get a number of bidders to participate for the rail network and station modernisation programme.

Leasing Of Locomotives for Main Line Passenger Services (MLPS) and for period of six months (Supplier: Premifield)

The leasing of locomotives for a period of six months was out on tender in March 2019 to invite bidding for the MLPS. While they were preparing to evaluation the tender they requested Treasury to at least appoint, on an urgent basis, a particular company called Premifield. This was so that while they were evaluating the tender, the service was not interrupted. This tender was currently under evaluation, but the service was at least rendered.

The Public Protector had indicated that all tenders above R10 million within PRASA needed to go through a particular process before being finalised. There were capacity issues within PRASA to have enough auditors for the projects because most projects in PRASA exceeded the value of R10 million. This was a particular bottleneck in PRASA where they did not want the service to be held up.

Supply, delivery and installation of Over Head Track Equipment (OHTE) on the up main line between Fountains and Olifantsfontein in the Gauteng Region (Supplier: LKKB Engineering)

The repairs to the Over Head Track Equipment (OHTE) on the up main line between Fountains in Pretoria and Olifantsfontein in the Gauteng Region were another matter. The project was an emergency because it was to do with the electrical line. The traction equipment was damaged at the time. Treasury granted an approval on this project, which was undertaken.

Mr B Hadebe (ANC) asked for an understanding on issues of conditions, where the report indicated ‘conditionally supported’, and if these were met by PRASA.

Mr Mathebula clarified that in the case of Premifield, the condition was to fast track the evaluation of the tender. In the instance of LKKB Engineering, the condition was that PRASA needed proper planning in future so that the equitable principle covered in the Constitution and the Public Financial Management Act (PFMA) were not violated on that particular project.

Station Modernisation Programme (Isipingo)

Consultants appointed by PRASA had gone out on tender, with a panel of consultants being put together. They had to select from the panel and did not go out on an open tender. They simply went and selected six companies out of the panel directly. This resulted in an expenditure of R275 million. After this expenditure was incurred, they went back to Treasury and sought a deviation. Treasury responded that since the expenditure was already incurred, they should have approached Treasury earlier. As such, the application was declined. To conduct the process of condonation, PRASA first needed to go through a process of investigation, namely asking who was responsible, and what consequence management steps had been taken, etc. It was for this reason that the particular application was still subject under the SIU at the time of the meeting. Within PRASA, they had also suspended at least five officials who were involved in the appointment of these consultants. The Board would also await the outcome of the investigation from the SIU while the officials were suspended. He would speak on this again later because there was something else that had occurred with this matter.

Regarding the request for quotations (RFQ) process to procure mission critical spares in infrastructure depots instead of bid competitive process, he indicated that Treasury rejected this particular application. Apparently PRASA would be going out on an open competitive bidding process to acquire those spaces. Treasury gave conditional support on the appointment of drivers’ accommodation, bus parking and light cleaning for busses. The condition was that in smaller towns it was acceptable to appoint the service provider but in biggest cities there needed to be a competitive open process.

With rolling stock commodities, he said that Treasury did not support the application for rolling stock commodities held by Transnet. However, Treasury had initially supported the project pending further information, which they would receive from PRASA. One of these conditions was because Treasury had said that the stock they were receiving from Transnet might be obsolete and so they needed further information. They wanted to make sure that if PRASA took the space, the space could still be usable. In this time an official went ahead with the project without the go ahead, spending almost R40 million on spares. There was consequence management for the individual who proceeded with process despite conditions from National Treasury.

The Chairperson said that from a reporting perspective, there was the fundamental challenge and they might have a challenge in this matter because the person presenting was at a National Treasury and so would have adjudicated in the main on these deviations an expansions from the position and vantage of National Treasury. He was now sitting in a PRASA seat and was reporting on expansions and deviations from a process perspective, which he had adjudicated himself at Treasury. The absence of the acting CEO in this regard was a problem, notwithstanding the fact that she was indisposed. PRASA would have already engaged with National Treasury on these matters, and as such, he (Mr Mathebula) was more of a player than a referee in the matters he was reporting – spelling a particular conflict of interest from a reporting perspective. This was like someone throwing a javelin having to also catch it. The Chairperson had a particular worry about the sequence of events. He flagged the matter and was not sure how they would proceed with it under the circumstances and given their limitations.

Mr Somyo said that a number of applications had been made to National Treasury for such deviations. National Treasury could not approve some, while others were conditionally approved. Of those that could not be approved, Mr Mathebula had said that they were setting terms of reference in a procurement process of advertising such. The result was consequential to the fact they were experiencing lockdown, though this was not an excuse. If anything, this would have provided them with time to deal with matters. People were receiving pay at the end of the month. When applications were declined at National Treasury, they ought to have pulled together based on their capacity and terms of reference. Was there any capacity that existed in the procurement section to handle these matters? It was as if now they were on a similar track of ineffectiveness. Mr Somyo cautioned that they might see matters re-occur, with PRASA wanting to push methods through the deviations method, which might not assist process functionality. He asked that these questions be attended to.

Mr Ramatlakane addressed the Chairperson’s concern, which he said he agreed with. He said they were in the Chairperson’s hand; if the Committee wished for a different approach in terms of coming forward in future, PRASA was happy to do this. They had not expected the CEO to fall ill, and so it happened quite expectedly that Mr Mathebula and the CEO worked interchangeably. He accepted the criticism that the issue of going onto the tender process could have been dealt with much better. They could have ensured that the paperwork was done and that the status of the countries change was confirmed and the adjudication and evaluation processes had happened. They should have also gone ahead with the paperwork and not waited for now where they delay more, which would ultimately delay the process.

On the issue of capacity, he said that PRASA needed to improve this, particularly with skill and capacity in the procurement section. This was what the board was dealing with to ensure they did not incur the same problems as before.

Mr Mathebula agreed that they were hard at work on the number of areas within PRASA, but of course the capacity issue was the reality. He acknowledged that he had been in the Treasury and was now in PRASA, but asserted this came from wanting to help the ship move.

At this point, the Chairperson suggested that Members park matters of expansions and deviations momentarily and deal with the hearing on the annual report, led by Mr Hadebe, followed by Mr Lees on investigations. The Chairperson pre-empted that one of the issues they would deal with would be vacancies. For example, why officials had been seconded from National Treasury. The annual report hearing would deal with matters that might come up in PRASA’s report and they could raise issues then.

Mr Somyo asked the PRASA board how many meetings they had held since lockdown status and since appointment until now.

Adv Smanga Sethene, Chairperson, HCM-REMCO Board Sub-Committee, responded that he was not sure about lockdown, since they were appointed in October 2020. He began with an estimate, though the Chairperson requested specific information. He said that if the information were not readily available, then it would need to be pulled out.

The PRASA board secretary responded that they had 14 meetings since they were appointed.

Mr Somyo said that this was telling of the deep-rooted issues at PRASA. He wanted them to probe the number of meetings they had further after the presentation.

Discussion

Questions led by Mr B Hadebe (ANC): Annual Performance Plan

Mr Hadebe noted that the board had been appointed for four months and acknowledged that there were undertakings the Board Chairperson had taken. The priorities of the board were to address the root cause of audit findings, including poor record keeping, poor financial management, lack of consequence management and instabilities in key positions. This was the undertaking of the PRASA Chairperson when the board had previously appeared before SCOPA. At the time they were fairly new. SCOPA now wanted clarity on the security of rail and rail infrastructure (the plans to address consequence management and dealing with vandalism). In dealing with the annual report and audit findings, the focus of the hearing would be premised on the audit findings.

The following were contributing factors of PRASA receiving two consecutive disclaimers from the Auditor-General (AG):

• Instability at both board and key management level
• This was in relation to the key strategic position of the group CEO and CFO, which had negatively impacted on PRASA as an entity.

Despite this, Mr Radebe said, on behalf of the Committee, that the Members were pleased that there was now a permanent board CEO. However, the AG said that not all the positions were duly filled (20 October 2020). To the Minister, Mr Hadebe asked if all key positions had been filled in the board.

Minister of Transport, Mr Fikile Mbalula, was present in the meeting, though he was directed that he would speak at the end.

Mr Radebe highlighted that part of the contributing factors to instability were the vacant positions. Ordinarily in South Africa, the turnaround time to fill any vacancy was three months. How many other senior vacant positions were there? What were the plans in place to fill these? What were the statuses of the Group Chief Financial Officer and the H analysis? This question was directed at the board.

Mr Ramatlakane responded to this.

Filling Vacancies

The assessment was that the structure currently as it stood was bloated. Since the structure was top heavy, the board took the decision that they would need to review the structure so that it was able to deliver the work. As such, they had not gone on to fill vacancies, and the vacancies that were filled would be lower than the top management. The top management was too big and had too many layers to get to the top. So, they needed a structure that would respond to the challenges, and they were working on this. They hoped that by the first of the new financial year they would have done a structural review. This was also obviously a process where they wanted to have skilled individuals in their positions.

Finding Capacity following AG Report

Management had put together a focus team that dealt with the AG’s finding and what it was that had to be done to make sure that those recurring findings did not happen. There were two years that were particularly problematic, and they had dealt with the first year to deal with the findings. About 73% of the first year had been cleared up with the audit findings and they were now working on year two. The plan was that by the time they got to the new audit that they would be able to look at the new financial year and not have to look back to the two years behind them.

Safety

Mr Ramatlakane said they were finalising the integrated security plan that they had done in the process. They were getting the personnel to support the plan. Insourcing the 3 100 people was 90% complete; they needed community participation in order to be sustainable going forward. This was so that the community could be the eyes and ears in terms of the vandalism of property of PRASA. The following week, some of the projects would be deployed at some of the stations.

Adv Sethene added to this. As a board they agreed that there was a need for a skills audit at PRASA. The skills audit would ordinarily lead to a placement and restructuring. There was a five-layer management structure, which was too bloated. There were 17 000 employees that performed at 17%, which called for a serious skills audit. There was no point in having a 17 000 staff group that only performed at 17%. It was on this basis that restructuring and skills was inevitable to ensure they had a linear service that would provide services expeditiously.

Mr Hadebe asked when the skills audit was commenced and the timeline of this; when would this be completed?

Adv Sethene responded that it had not yet commenced. The board anticipated that in the next quarter, skills auditing would commence. The reason it had not yet started was because employees were on a rotational basis, so it was not conducive for rolls to be done as they normally would be. They would come back to Scopa to inform comprehensively about the outcomes of the skills audit. With finance and procurement, they also had capacity problems. They had to ensure that people put in positions had requisite skills so that they could perform the task at hand.

Mr Hadebe asked about the position of the CFO.

Adv Sethene said this would be addressed by the following week. The board had agreed that it should be advertised.

Mr Hadebe understood the board was fairly new, but there were various issues which needed to be done expeditiously, especially if highlighted by the AG. If they had been able to fill the position of the group CEO why was this one (CFO) taking so long? What led to the delays in filling this position? They needed to see a sense of urgency, hence why he asked for the age analysis. Structure always followed strategy, which was why he was concerned that they were looking at a skills ordered without having a structure in place. Mr Hadebe asked what they wanted to see when it came to the bloated structure moving forward.

Mr Ramatlakane explained the CFO position. They had inherited a dispute with the previous CFO, who was in fact fired. There was an existing dispute so they could not fill the vacancy until the dispute was resolved. Currently, they had made a proposal to settle on with the particular individual so that they could advertise the CFO position. As far as he was aware, the settlement was sent to the individual’s lawyer. They were waiting for her to accept the offer made so that they could advertise. This was cause for the delay. According to law, they could not appoint someone to a position that was under dispute.

Mr Hadebe took the point and welcomed the clarity. He asked what the plans in place to ensure they had a fixed assets register. How long did they think that process would take? Not all documents were submitted for record purposes in the financial year under review. There were also record keeping issues on previous findings, which remained unaddressed. Mr Hadebe asked the PRASA for a sense of their assets register – whether or not they had a plan to deal with this aspect.

Ms Thinavhuyo Mpye, PRASA Board Member, said that they wanted to make sure that their fixed asset register management would be sorted before the next financial year. They had inherited an issue where they had document control problems as articulated. However, what they had done was with the Information and Communications Technology (ICT) sector. They had tenders that had gone through to enhance and improve the document control – they were saved on the cloud. They would also be going through to one of the stations and checking the network to make sure that the availability of the assets was properly recorded.

Mr Hadebe repeated his question. Specifically, he wanted to know the plans in place to ensure they have a fixed asset register. He also wanted to know the timeframes for them to achieve such.

Ms Mpye said that she addressed the document control situation that they had inherited. The AG had said they could not find documentation; this was a matter of document control. There was a tender being advertised whereby they wanted to strengthen the document control. Rather than having physical files that could be lost and misplaced, they were shifting to use a cloud. They wanted documents to be stored on the cloud and not on paper to ensure they were not lost.

She then addressed physical verification of the assets. They had a drive that was supposed to be started the week before. However, because of a corporate plan meeting that they needed to get out the way, they could not start the drive last week and would be starting the following Thursday, whereby they would visit one of these stations and making sure they would physically verify what was at the station.

Mr Hadebe said this related to the ICT challenges and ICT performance. In the audit report, the AG report highlighted that the ICT deficiency that was previously reported for the last five financial years was unresolved. There were also large numbers of vacancies in the ICT department, including the Information Security Officer and the recently dismissed CIO. Have they been able to fill some of the critical positions within the ICT department? There were certain departments that you could not function without. IT was one of them as it contributed to the threat to government.

Ms Mpye confirmed that they had filled the CIO position in 2020. In terms of the probation process, the group CIO position was filled. As such, she could confirm that the ICT environment was getting to a stable position, including the staff represented in that Department.

Mr Hadebe said that this was not the only position that was vacant as per the AG’s report. There were many positions vacant in the sector. How many vacant positions were there over and above the ones already highlighted? Alternatively, were they adopting the same approach with the skills ordered in IT, even though the AG had highlighted that this impacted negatively on PRASA?

Adv Sethene indicated that the position of Group CIO had been filled. The board did not want a situation where they were filling positions when a skills audit had not been done. There would be a consultative process together with unions and staff. They assured SCOPA that the CIO had been able to ensure that all the information they had at browser was stored on the cloud and the security of the IT system was in check. At the appropriate time, they would give SCOPA a comprehensive response in relation to this.

Mr Hadebe asked if the Committee could have an assurance that records would be made available for audit purposes.

Adv Sethene explained that when they were appointed, they were informed that there were no board minutes previously. The CIO had been able to ensure that they had recordings transcribed on the system. Confidently, they could say that they had the minutes of the board meeting prior to the appointment and as they went along they would ensure that documents were stored on the cloud for security reasons.

Irregular Expenditure

Mr Hadebe mentioned that PRASA was reported to be the number one offender on irregular expenditure. For the financial year under review, irregular expenditure disclosed was to R1.3 billion with a closing balance of R28.6 billion. The AG’s reports said that previous noncompliance had remained unaddressed by senior management. Ineffective steps were taken to prevent irregular expenditure. Senior management had allowed a culture of noncompliance in the entire organisation of PRASA. To put it bluntly, this meant that everyone was doing as they pleased. There were contracts that were overspent without obtaining the necessary approval. Those contracts amounted to R194.4 million. There was also payment to suppliers without signing the contracts, which amounted to R39.8 million in competitive bid processes that were not followed, including splitting quote amounting to R1.79 billion. Despite all of the above, no investigation was carried out for all instances of irregular expenditure reported for the financial year of 2018/2019. No evidence was provided for the action taken against employees for the financial year 2017/2018. Yet irregular expenditure continued to increase for the past three financial years, starting from 2018. They were sitting at irregular spending of R24.2 billion in 2018/2019. In 2019 there was R27.2 billion overspending and in the current year under review there was R28.6 billion in irregular spending with no evidence of consequence management. Having been in office for six months and received such a report, also given PRASA’s statutory duties and expectations in terms of the PFMA, has the Board instituted investigations on irregular expenditure at hand, and has it identified officials implicated in irregular expenditure? How many officials were they talking about? Were they able to finalise cases that were left unattended for the past two financial years? The Committee understood that the PRASA board was new, but the law of succession still applied, especially when non-compliance was highlighted.

Ms Mpye responded that in all the irregular expenditure that occurred, condonation was never stopped. There was never any application for condonation. When it was reported to the board and the Audit and Risk Committee (ARC), they ordered that they should start the process of condonation. There were approximately 116 condonation applications brought forward. For them to be successfully completed, they needed to be turned back to internal audit such that they could evaluate the benefits that PRASA would have derived on those applications. That process was still underway at the time of the meeting.

Mr Hadebe acknowledged the condonation applications. There were certain processes and measures to put in place before even applying for condonation. The first was to verify whether they did not suffer any losses and there was value for money. Secondly, they needed to have identified officials and instituted disciplinary proceedings against those officials responsible. Under 116 applications it seemed to suggest that these requirements had been fulfilled and they would therefore be able to tell SCOPA exactly how many out of the 116 were implicated. Did they receive value for money? Did they not suffer any loss as the entity in relation to their application of condonation? What were the recommendations from the last control function in relation to the application of condonation? Were they been able to comply with all the steps before arriving at the process of applying for condonation? What were the remedial actions taken by the accounting officer or accounting authority to prevent such from happening in the future? This was to ensure that they did not apply to Treasury, who would send them back and say that they had not applied the prerequisites.

Adv Sethene said that consistent with the irregular expenditure framework, the board had resolved to appoint firms of attorneys through Treasury, which would carry out these investigations on behalf of PRASA. One of the briefs would be for those firms of attorneys to ensure that consequence management was carried out. They were still in the process of ensuring that these forms of attorneys were authorised.

Mr Hadebe asked whether for condemnation of 116 applications had thus been done prematurely, given the required form at applications.

Adv Sethene said that he was only dealing with consequence management and investigations to be carried out. Those who were pointed out by the AG would be identified and brought to book. This was the commitment that he was making. They would ensure that any member of management or staff found to have contravened the PFMA would be processed in terms of the procedure recommended in the irregular expenditure framework.

Ms Mpye said that there were two parts to the irregular expenditure. The one had been referred to the SIU and Hawks and was being investigated. The second part submitted was about the 116 condonation applications, which was submitted to the Audit and Risk Committee (ARC) and not National Treasury. When it came through to the ARC, they observed that they needed to be consequences management documents, which was not there at the time. They will get to get the feedback based on the last documentation submitted to them, which would satisfy that they were ready to make sure that the documentation on the National Treasury template was submitted. The 116 applications were over and above what the SIU and the Hawks were looking at.

Mr Hadebe said that they had been in office for five months and he was not getting an indication of whether they were addressing irregular expenditure with speed or not. Section 51 of the PFMA required that an accounting authority must take effective appropriate steps to, amongst other things, prevent irregular and fruitless expenditure from happening. PRASA would be dealing with the audit of 2020/2021 very soon and they needed to get a sense that they had done everything they could to address irregular expenditure from happening. The PFMA also dictated that they needed to identify officials involved and institute disciplinary proceedings against those that had incurred or committed acts resulting in irregular expenditure. These issues dated back to 2017 and 2018 financial years. The value and amount of irregular expenditure would escalate if they did not address it with speed. He wanted assurance that they were dealing with this with speed. Five months was a reasonable amount of time for the board to indicate that they were dealing with issues that the previous board could not deal with. The previous board had created a culture of noncompliance. There were instances where tenders were given to friends, but they did not know the speakers. None of them were brought to book. It did not build well in the meeting that the board did not move with this aspect. They had specifically mentioned the previous undertakings of the previous meetings they wanted to see within the five months they had been able to deal with consequence management to root out the culture of non-compliance.

Adv Sethene said a process was followed in terms of the expenditure framework and this process could not be rushed. There was a procedure that needed to be followed when it came to consequence management. This was to ensure that they had a credible report that would say that someone was a manager at a particular division and had committed a financial misconduct and this was how it was processed. They could not discipline people in the dark, but had to ensure that the process had positive results.

Mr Ramatlakane said that in the engagement they had with the SIU, they almost cautioned PRASA with speeding up to deal with consequence management without them finalising their report. The SIU would present a report on 15 March so that they could move with speed. There were names of officials, but the hesitation was that in terms of the explanation that SIU had given. It was about R14 billion that was implicated in the discussion around conversations of condonation applications. For clarity purposes, he said that they had only been in office for four months.

Mr Hadebe highlighted that in the financial year under review there was R1.3 billion in irregular expenditure. There was contract overspending without obtaining necessary approval to R194 million. It did not take the SIU or the Hawks to work out who had approved this. This was about internal control measures. They could workout themselves. Of their officials, who overspent without obtaining the necessary approval? This was essential so that they did not find themselves repeating over expenditure.

Adv Sethene said the framework made it emphatically clear that an investigation had to be carried out. It was critical to ascertain with the PFMA been contravened. They did not want to rush a process that they knew might backfire in the courts. They pleaded that the explanation they tended to SCOPA and in the light of the advice from the SIU be noted. They would be getting a comprehensive report from the SIU on 15 March. From that point they could move with speed, but at the time of the meeting they could not rush the process.

The Chairperson was against this and asked what ‘move slowly’ meant. Did they mean move slowly or proceed with caution to cover their bases? He said that the Committee would categorically not accept slow movement on these matters. He would not engage in their battle of semantics. No matter the vantage point, slow movement would not be accepted. Due process was understandable and Members expected nothing less, but they could also pursue due process with the necessary efficiency.

Adv Sethene did not think that they should be constrained by semantics but assured the Committee that they would move with due diligence and ensure that the due process was followed and the direct decisions were taken.

Mr Hadebe this due process was the accountability, monitoring and reporting of Section 72. It was very clear that the accounting authority needed to submit monthly information. They did not expect them to conclude 1 000 cases at once, but they did expect to know how many out of 1 000 had been completed. The due process included section 72 of the irregular expenditure framework, which meant monthly reports and irregular accountability cycles. Mr Hadebe was dissatisfied and still had six points to raise.

The Chairperson opened the floor for Members to present their issues.

Mr Ramatlakane reassured the Committee about not moving slowly. He said that PRASA would move with the necessary speed to deal with this matter, noting that some address historical recurrence from all the years. It should not be looked at in a literal sense that they would move slowly. They understood the urgency and recovery process of the money that needed to be recovered.

Mr Hadebe asked about fruitless and wasteful expenditure. Would the R34.2 million that was in interest and penalties on late payments have the same response in relation to taking action and consequence management as previously asked? The AG had said that no investigations were carried out for all investigations of fruitless and wasteful expenditure.

Mr Ramatlakane said that there was a basket of issues that needed to be addressed through a programme. They had identified officials - some were already suspended, and others were still in the process. He suggested that PRASA provide SCOPA with a written report on action that had been taken so that they did not wait for the following SCOPA meeting. They gave assurance to provide an interim report.

The Chairperson opened the floor for questions, though there were none. He asked Mr Lees to proceed with his questions.

Questions led by Mr A Lees (DA)

Mr Lees began with his questions.  He was shocked by the clear lack of urgency displayed in the meeting. As they were sitting in the meeting, someone was stealing a cable and vandalising assets elsewhere in the country. Yet, a member of PRASA was proud to be visiting a site later in the week, though this was not enough. He was not sure why one station visit would make such a different in the asset registry, given that so many assets had been vandalised to the point of not being usable at all. Perhaps someone was building another house on top of a railway line somewhere.  Where was the urgency?

PRASA operated and continued to exist, despite its poor performance. PRASA had received R16.5 billion of taxpayers’ money in the 2019/2020 year. In the same financial year, it carried 31% of the number of passengers it had carried in 2015. Processes were necessary, but they did not need to take so long. It was disconcerting that taxpayers were constantly being asked to bail out state-owned entities and PRASA in particular. R16.5 billion had gone to this in the 2019 financial year. They understood that there was a role for passengers to be carried and subsidised. However, in 2019/2020 this process carried 50% of the number of passengers it carried five years prior. PRASA was not performing and this was urgent.

Mr Lees noted that the SIU had completed 227 reports to the value of R33.1 billion – 37 were sent to the Hawks for further investigation and 23 cases were still outstanding. What exactly has the board done about the completed reports? Other than the 15 of March report coming up, where was the board with the action required from PRASA on those? He assumed that, given that the CEO was not present, the board chairperson needed to respond.

Mr Ramatlakane said that the full report from the SIU would be available on 28 February, with the final report on 15 March for them to take action.

Mr Lees said that this showed a lack of urgency, especially because the meeting took place on 02 March. Why were they waiting for the SIU to give this information, if they knew that the reports were complete? 

Mr Ramatlakane responded that they were not waiting. As the SIU delivered the report, they would act with urgency. What the board had done in the previous four months showed that they had urgency. They also had to bear in mind that they were told to also act with caution.

Mr Lees said that the first mandate of the SIU ended on 30 August 2019. That mandate resulted in 288 investigation reports, of which 227 of the reports were completed. If there was the urgency, why had they not asked for the reports to fix the completely destroyed organisation? The answer was where it was, but he found this rather said.

In June 2019, the SIU advised the Department to instruct the state attorney to recover R 4.5 million from a service provider that under-delivered. He asked who the service provider was and did they still do business with PRASA.

Mr Ramatlakane said that this was before his time. However, he could say what they needed to do was to follow this up with more accurate information about these service providers. They could give this in a written report.

Ms Lees said that because there was a big team on the meeting, surely there was one official who could provide the information for this question. Mr Mathebula was called to provide this information.

Mr Mathebula said that they would provide the information in writing, since it was not readily available.

Another PRASA official said that he also did not have those details.

Document Management and Security

Mr Lees said that the board could follow up in writing. He then moved on to the matter of document management and security. What consequences have there been for people who had not done their jobs and maintained a record of documents as would normally be required in any organisation, let alone a state entity?

Adv Sethene reckoned that the explanation he tended earlier would suffice in the circumstances.

The Chairperson asked for this explanation once again.

Mr Ramatlakane said that Mr David Mphelo had the responsibility to deal with all information and securing of document information. He had also created a backup information system on the cloud. All the documents of PRASA are now basically secured on the cloud with the new system created.

Mr Lees clarified that his question was about history. What action had been taken against employees that had not kept record, as they should have? It sounded as if there was no action taken.

Adv Sethene was not certain - he could not say that there was action taken against those employees. They had a steering committee ensuring that they addressed each and every matter detailed. He assured the Committee that consequence management would be taken against anyone without fear of favour.

Mr Ramatlakane said that some officials had left PRASA on their own accord but the detail would be provided to the Committee.

Locomotive Technical Report

Mr Lees said this was another indicator of the lack of urgency, which he believed existed in PRASA. Members were told at the previous SCOPA meeting by the board members that there would be a proper technical report completed about the use of the overheight locomotives on their networks. This was due to be done by the end of January. Has the report been submitted and what were the outcomes of the report?

Mr Ramatlakane said the report could be sourced from the Railway Safety Regulator (RSR). This report indicated, in particular, which section of the rail network could be utilised. The locomotives were designated to run the long distances. This report could also be made available again because it was done some time back. There was a discussion that was taking place with the current Stadler. Because of the locomotive standing at the harbour in Spain, some of those locomotives paid for needed to come to South Africa so that they would be used. This process was going through liquidation. The process needed to culminate in court around April 2021. Six locomotives were being kept in South Africa. There was supposed to be commission so that when the whole agreement was finalised, they would have done the hours in terms of the taste and running on the South African rail system.

Mr Lees mentioned the locomotives that were in South Africa. How long have they been in South Africa and when would the testing of the locomotives start?

Mr Ramatlakane said South Africa had a dispute that arose between the contracts since there was a court case in 2016/2017.

Mr Lees asked why testing was only starting now.

Mr Ramatlakane explained that because of the dispute about whether the contract was regular or irregular, it could not be used because it was part of the issues around the discussion. It was ultimately declared that the contract was irregular, while the issue of locomotives was in South Africa. The locomotives were not being used and were parked. The board had to make a decision and began with the commissioning of the locomotives.

Mr Lees asked if the testing was starting before there was a final agreement about the final contract. It was declared irregular by the courts, but did the court transfer ownership of these six logos to PRASA, or was the ownership still in dispute?

Mr Ramatlakane responded that the ownership was in between the dispute and where they were. The locomotives were being kept in the depot that belonged to PRASA. These were the locomotives part of the delivery that happened first, but they were still part of the dispute. They had decided to be proactive and test the locomotives.

Costs of Locomotives

Mr Lees asked Mr Ramatlakane how much had been paid to any of the entities so far.

Mr Lazarus Mkhabela, PRASA, responded that the amount paid was around R2.6 billion in total.

Mr Lees asked if it was correct for him to say that of the total locomotives, there were six in South Africa and 23 sitting in Spain.

Mr Mkhabela said that initially, there were 13 locomotives delivered to South Africa. Seven were auctioned off and six remained in South Africa, if he was not mistaken. He thought that the 23 included the 13 in South Africa, but he was not familiar with that contract.

The Chairperson cautioned the delegates on guesstimates and estimates because they did not tie them down to anything substantive. He asked that the actual figures be pulled out.

Mr Lees appreciated the Chairperson’s intervention and was sure the figures could be pulled out as they moved on.

Mr Matodzi Mukhuba, PRASA Board Member, elaborated on the locomotives with Stadler. He said that they worked together with RSR to ensure the locomotives were in South Africa. When the commercial agreement was reached, they were able to work on the lines. This was happening between Transnet, PRASA and RSR to ensure they did not enter into a commercial agreement before assuring they had dealt with the technical issues as raised by RSR. PRASA had warned Transnet to be clear and resolve issues with the RSR so that by the time they deployed the locomotives, they were able to use them. They knew that the locomotives ran on 25 kilovolts (kV), but there were still challenges on 3kV. This is what PRASA, Transnet and the RSR would give updates on as they worked on solutions.

Mr Lees concluded that there were 13 locomotives delivered, of which seven were auctioned for a fraction of the cost and six were retained; 23 were initially ordered. Given the explanation about using the locomotives on their system, which was far from ideal, why were seven auctioned? Why were all 13 not retained?

Mr Ramatlakane said that this decision was taken before the current board members arrived and they could not speculate on the reason.

Mr Ramagoganye Ngakane, Senior Manager: Office of the Group CEO, said the Swifambo Locomotives order was at 70 locomotives, and 20 were in South Africa. In 2015, the contract was set aside, with the board deciding to start a litigation process. Subsequent to the liquidation process, the entire fleet was handed over to the liquidators appointed {Tshwane Trust Co. (Pty) Ltd}. They would commence the process of recoveries. The contract was worth R3.8 billion, of which R2.6 billion PRASA had paid to Swifambo, who paid R1.8 billion to Vossloh Locomotives, a Spanish-based locomotive company. They were now talking about Stadler, a Switzerland-based company, because it had purchased Vossloh.

On the liquidation, the 13 locomotives in the country were put on auction for a lower value. Of the 13 locomotives, one was involved in an accident in Kimberley and was damaged. The company that bought them (six locomotives plus one damaged) paid R65 million, which was still held in trust by liquidators, Tshwane Trust. Because they were getting a very low amount, they said that PRASA should look at a commercial agreement. This would offset what they had lost in the contract, which was why they were sitting with six locomotives. This also brought up the question that their locomotives were no longer under the jurisdiction of PRASA, but under the jurisdiction of the liquidators. The current proposed commercial agreement involved PRASA, Stadler and the liquidators. Stadler was offering 22 locomotives, which PRASA rejected. They came up with a revised offer of one extra locomotive. Together, this was combined – the Afro-Diesel and hybrid (Afro-duel) locomotives. Cause of the court order arising, this matter was taken to the court for further processing. Acknowledging that PRASA needed the locomotives quite urgently, they had been a proposal that the six locomotives that would be part of the deal of 23 would be processed in the courts, requesting that they use them now urgently as part of the agreement. This submission was submitted on Friday by the liquidators to the court. The total value of the proposed commercial agreement was R1.1 billion, which would include the 23 locomotives and other conditions, such as two year spares maintenance and training. There was engagement with the University of Stellenbosch on combustion, training and the overhead contract. The previous report received from both RSR and Transnet was that the current locomotives could operate on the 3kV line, but not on the 25 kV line.

Mr Lees said that he appreciated the detail, though to some extent it contradicted what had just been told a minute ago. It would cost them R3.7 billion for 23 locomotives, of which six were in the country. He asked if this was correct.

Mr Ramatlakane understood that the value of the transaction was R1.1 billion, which was a value they would derive from the agreement.

Mr Lees needed clarity and asked this of the Chairperson. The Members were told that the commercial agreement was for R1.1 billion, which included other things like spares, etc. But if you took the R2.6 billion that was already paid out, and the R1.1billion, you would get R3.7 billion. For this they would have 23 locomotives and then needed to follow up on which locomotives. At the end of the day, was it correct that the cost to the taxpayer would be R3.7 billion?

Mr Alec Moemi, Director-General, Department of Transport, came in to say that R2.6 was paid to Swifambo but they were now being liquidated. Stadler took over an unfinished delivery of the contract placed by Swifambo to Vossloh, which had since gone under. For the R1.8 billion, they took away the funds for the 13 locomotives already delivered to South Africa. This left them with a positive credit balance, because the remainder of the order had not yet been delivered to Swifambo. Stadler would not be able to deliver the remainder of the locomotives for the R1.8 billion because of the liquidation. Some were already in the harbour in Valencia, in Spain, waiting to be shipped, but they could not because of the liquidation. In terms of the liquidation process, the liquidators had the right to claim their money from any creditors that owed the company. In this regard, they had reclaimed the entire 13 locomotives in the contract. They sold a portion thereof. The idea was that if the locomotives were being sold this cheaply, it was a double whammy for the people of South Africa. PRASA still required trains and passenger services for South Africa. As such, they asked the liquidators to negotiate directly with Stadler, who was given an opportunity to indicate how much they could provide. They first proposed 22 locomotives, but they ultimately agreed on the supply of 23 locomotives, with maintenance, training and spares. This included setting up capacity in South Africa, so that the trains could be maintained in South Africa. Stadler had indicated that the technicality of lowering the trains by four millimetres should be implemented in advance prior to the locomotives being delivered in South Africa. Stadler Head found technical solutions for this error and would be able to lower the trains to the requisite level to be able to operate on both kinds of lines. The combustion initials were higher than they should have been. Stellenbosch University was contacted to look at the solution. They believed they had a solution for the combustion issue. The locomotives were originally bought for Shosholoza Mail and long-distance rails. If the tripartite commercial agreement was reached, the R1.8 billion, which the liquidators would no longer be pursued in the sense that PRASA would have realised real value on such a negotiated settlement. This was a special application as the matter was in fact a matter of the court in the interests of the country. There was therefore no additional R1.1 billion that would be paid to Stadler to PRASA It would rather be the mender of the balance that Stadler inherited from Vossloh. 

Mr Lees clarified that for R2.6 billion that was already paid; South Africa would receive 23 locomotives instead of 70. Furthermore, a technical fix would be done on the locomotives remaining in Spain and on the six in South Africa.  He asked if the deal had gone through originally an all 17 locomotives applied what they would have costed.

Mr Fana Marulta, General Manager: Chief Engineer, PRASA, said that the contract was for R3.5 billion for 70 locomotives.

Mr Lees said that he was trying to establish the real cost of the deal. He asked how many locomotives were in left in Spain. Did it mean that there were ten?

Mr Marutla did not have an immediate answer. He said that he would gather the detail and share it.

The Chairperson said that it did not inspire confidence when they could not answer the most basic of questions.

Mr Mukhuba confirmed that there were indeed locomotives in Spain. However, he also was not sure exactly the number. He confirmed that the locomotives would be modified in Spain, so that when they came to South Africa, the modifications would be done and an acceptance test would need to be completed.

The Chairperson said that the ‘ping pong’ kind of responses was confusing in itself. For lack of a better term, it was incoherent and that made recordkeeping challenging.

Mr Marutla came in to say that it was about 12 locomotives in Spain.

Mr Lees was baffled that there was a massive tripartite agreement being negotiated, to billions of Rands. He would have thought that the numbers and figures would have been at the fingertips of any PRASA official.

He thanked the PRASA team and the Chairperson for their indulgence.

The Chairperson handed over to Ms K Mkhonto (EFF).

Deviations, Appointment of Women and the Skills Audit

Ms K Mkhonto (EFF) asked what the percentage of the amount that they intended to deviate on compared to the overall funds allocated to the SOE was. Another Member had spoken about 13% performance. She wanted to know if they had received performance bonuses. If so, this would be concerning given the poor performance of the entity. PRASA needed to improve on their reasoning for deviations and not to assume, for example, about small towns versus urban areas. This must be addressed.

She suggested it was high time they gave women a chance to lead these entities. She saw a high number of men leading and this was where they always ended up. In future, could they give women a chance to be part of the top management?

Mr Mathebula responded to Ms Mkhonto. He said that PRASA would look at the budget of that particular year and then compare it with the applications sent to National Treasury. This would give the percentage. The information was not readily available. .

Mr Ramatlakane understood the question to be about the deviations versus what was agreed in terms of the PFMA, i.e. what was permitted and what had ultimately occurred.

Mr Hadebe raised two issues. The first was on subsidiaries and their financial viability. The AG had raised concern that the financial sustainability of their subsidiaries were uncertain, and that the financial position kept on regressing. He asked for an update on progress taken to ensure the financial viability of these two subsidiaries (Autopax and Intersite).

Mr Ramatlakane said the PRASA core mandate was provision of rail system was tied together with the bus operation system. It was true that Autopax was going through challenges with financial viability as a standalone company. To remedy this, the company would become a division of PRASA. It did not generate enough transport provision for its sustainability, so the decision taken was that it would no longer be independent – it would be a division of PRASA

Intersite was a company established with the intention of being at the high end of the market in terms of development. This had not been sufficiently resourced, unfortunately. However, as mandated by the Minister, they were making sure there was a merger to make sure that Intersite would not stand on their own, but would form part of the cres in PRASA. With maintenance and property, the board had taken the decision to merge Intersite. They hope that in the year going forward; this will address the concerns as raised by the Auditor-General.

Mr Hadebe asked for a sense of how many audit findings they had resolved thus far, and how many were still outstanding as per the AG’s findings. 

Ms Mpye said that in 2018/2019 they had addressed 73% of the audit findings. With regards to the 2019/2020 they had currently addressed between 15% and 20%. They were still going on with this and assured the Committee that instead of having risk meetings on quarterly basis, they were having these on a monthly basis because they saw an understood the magnitude of issues that they had at PRASA. The internal Audit Department had also resolved to convert into an advisory/cooling off period. They were comfortable that the control environment was being built to a point that they were comfortable with. Their initial timelines showed they wanted to deal with this by the end of April though, since their monthly meetings they had set up a toss team for dealing with ordered findings and they had given themselves up to the end of March to give a comprehensive report.

The Chairperson thanked the chairperson of the board, Members, and executives. Members have taken note of the questions raised and the responses that would do in writing. They asked that responses were given by the coming Friday, close of business. This was so that they could just consolidate on their report on this matter. They would be scheduling a visit to process and its entities and strategic sites so that they could compare what was on paper versus what was being reported.

The Chairperson expressed his disapproval of the conduct of some of the board members, saying that their attitude was of serious concern towards Parliament. They would not call it out individually, but next time they would and it did not sit well with the culprits, when that kind of behaviour played itself out in the meetings. They did not want a situation where the relationship between them, the Department and its entities and accounting structures was of serious tension. It was noted and flagged and would be monitored in future. He handed over to the Minister for concluding remarks. Ultimately it was the Minister who would field questions.

Concluding Remarks by Minister

Minister Mbalula said that they were still on the journey. The Members was correct that PRASA needed to move with speed, but they also had to stamp the authority to show that things were moving for the better. The Department expected that coming into SCOPA, at least the management of PRASA would be organised, though he was not shocked or surprised about the low level of organisation in the meeting because “the centre did not hold”.

There had been many suspensions at PRASA. This was often because people held positions that they were not supposed to.  One would expect clear and better performance going forward. The board had hit the ground running. They were lagging behind in certain instances, but the engagement by the Committee would allow the board to go to the drawing board and get more organised to close the gaps. There was a lot of work to be done, but good days were ahead with PRASA.

Regarding the two vacancies previously asked about, he said that this was already in the Cabinet system. The Minister foresaw that this would be finalised March or April 2021. The matter first had to go to the Cabinet Committee and then to full Cabinet. In the next cycle, when the board meet, those officials would be appointed. The process is with constituting a proper in executive management with PRASA was quite urgent, as was employment of new people with requisite skills.  He had signed a contract of agreement with the board. He expected all issues, including fruitless and wasteful expenditure and other outstanding issues in terms of irregular contracts at PRASA, which the board was working with the management on, would be dealt with. The Stadler matter was also one of these.

The Chairperson said they still had to deal with the financial implications, in so far as the financial administrator was concerned. There were other issues too which they needed to deal with and they still had a long way to go. They were hopeful that in the next engagement, vacancies would be filled. Scopa continued to persist and insist that PRASA needed to keep working and become functional.

Members were thanked.

The meeting was adjourned.